Features

Ten years on, the debt bubble is bigger than ever

Ten years after a financial crisis caused by too much debt, the world has an even higher debt load.

914_MW_P04_markets_bottom

Debt, debt and more debt, says Jack Hough in Barron's. In the fiscal year that ended in September 2017, the US government spent $655bn more than it gathered in revenues. A new fiscal year begins for the US government in October and its debt is ballooning. This year's deficit could amount to $1trn.

The public-debt mountain will swell from $15.7trn at the end of September, or 78% of gross domestic product (GDP), to $28.7trn in a decade, or 96% of GDP.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

There is "no clear milestone" to mark the moment "a country loses control of its finances", says Hough. But debt should be contained at a manageable percentage of GDP, and "the opportunity for that is slipping". To hold the line at 78% of GDP over the next three decades would require finding immediate savings in the budget of $400bn over the coming year, rising gradually to $690bn by 2048. In contrast, last year the US spent $590bn on defence, and $610bn on all other discretionary items, such as health and transport.

The US public debt build-up is just one major element of a global problem: ten years after a financial crisis caused by too much debt, the world has an even higher debt load. The International Monetary Fund calculates that global borrowings (public and private) are worth 225% of GDP, up by 12% in the past ten years. China's credit bubble alone is responsible for 43% of the rise in worldwide borrowings since 2007.

Advertisement
Advertisement - Article continues below

The problem is we have already exhausted all the tools to fight the fall-out from a debt-bubble bursting, as Ambrose Evans-Pritchard points out in The Daily Telegraph. There is no more room for major fiscal stimuli on either side of the Atlantic, while we have already gone down the money-printing route. The big economies "are skating on dangerously thin ice".

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516944/why-wall-street-has-got-it-wrong-again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Visit/504252/brace-yourself-the-global-economy-might-be-healthier-than-it-looks
Economy

Brace yourself – the global economy might be healthier than it looks

Investors have been worried about a global recession since the start of the year. But the latest indicators suggest things might not be so bad. John S…
2 Apr 2019
Visit/502393/the-us-economic-downturn-its-only-a-matter-of-time
Economy

The US economic downturn: it’s only a matter of time

With the US economy facing headwinds from trade wars to slowing global growth, talk of a recession is picking up.
22 Feb 2019

Most Popular

Visit/investments/property/house-prices/600840/the-biggest-risk-facing-the-uk-housing-market-right-now
House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
Visit/economy/600838/money-minute-monday-17-february-good-news-ahead-for-the-uk-economy
Economy

Money Minute Monday 17 February: good news ahead for the UK economy?

Today's Money Minute looks to a week in which we get the latest employment and inflation numbers, plus retail figures for January and a slew of eurozo…
17 Feb 2020
Visit/economy/uk-economy/600824/how-the-bbc-can-survive-the-end-of-the-tv-licence
UK Economy

How the BBC can survive the end of the TV licence

The TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020
Visit/investments/commodities/600729/the-rare-earth-metal-that-wont-be-a-secret-for-long
Sponsored

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020